CANNABIS SATIVA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
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For the nine months ended September 30,
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2020
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2019
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CASH FLOWS FROM OPERATING ACTIVITIES:
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Net loss for the period
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$ (1,807,249)
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$ (1,850,088)
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Adjustments to reconcile net loss for the period to
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net cash provided (used) by operating activities:
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Bad debts
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—
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4,961
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Unrealized (gain) loss on investment
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(33,000)
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84,000
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Depreciation and amortization
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161,198
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421,254
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Depreciation included in cost of revenues
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8,928
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—
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Stock issued for services
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1,555,208
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875,603
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Stock to be issued for services
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—
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466,341
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Write off of prior year stock payable
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—
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(77,850)
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Changes in Assets and Liabilities:
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Accounts receivable
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(360)
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1,834
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Inventories
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(14,248)
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5,714
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Prepaid consulting and other current assets
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(13,932)
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7,853
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Deposits and other assets
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(50,269)
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—
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Accounts payable and accrued expenses
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86,711
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71,551
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Accrued interest - related parties
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41,292
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—
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Net Cash Provided (Used) by Operating Activities
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(65,721)
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11,173
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Cash Flows from Investing Activities:
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Purchase of fixed assets
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(57,180)
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(1,635)
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Advance to GK settled with asset acquisition
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50,000
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—
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Net Cash Used by Investing Activities
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(7,180)
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(1,635)
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Cash Flows from Financing Activities:
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Proceeds from sale of stock
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25,000
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—
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Proceeds from related parties, net
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145,500
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60,945
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Net Cash Provided by Financing Activities
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170,500
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60,945
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NET CHANGE IN CASH
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97,599
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70,483
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CASH AT BEGINNING OF PERIOD
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336,107
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151,946
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CASH AT END OF PERIOD
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$ 433,706
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$ 222,429
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Supplemental Disclosures of Non Cash Activities:
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Noncash investing and financing activities:
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Net asset acquisition acquired with shares of common stock
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$ 213,725
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$ —
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Common stock issued from stock payable
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$ 640,685
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$ 454,296
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Operating lease liablility from acquiring right to use asset
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$ 61,367
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$ —
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The accompanying notes are an integral part of these condensed consolidated financial statements.
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FS - 5
CANNABIS SATIVA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS – UNAUDITED
For the Nine Months Ended September 30, 2020 and 2019
1. Organization and Summary of Significant Accounting Policies
Nature of Business:
Cannabis Sativa, Inc. (the “Company,” “us”, “we” or “our”) was incorporated as Ultra Sun Corp. under the laws of Nevada in November 2004. On November 13, 2013, we changed our name to Cannabis Sativa, Inc. We operate through several subsidiaries including PrestoCorp, Inc. (“PrestoCorp”), iBudtender, Inc. (“iBudtender”), Wild Earth Naturals, Inc. (“Wild Earth”), Kubby Patent and Licenses Limited Liability Company, (“KPAL”), Hi Brands, International, Inc. (“Hi Brands”), GK Manufacturing and Packaging, Inc. (“GKMP”), and Eden Holdings LLC (“Eden”). PrestoCorp and GK Manufacturing are both 51% owned subsidiaries and iBudtender is a 50.1% owned subsidiary. Wild Earth, KPAL, Hi Brands, and Eden are wholly owned subsidiaries. Currently, PrestoCorp, GKMP and iBudtender are operating subsidiaries, although iBudtender is not currently generating any revenue. The Company is reviewing opportunities for business development relating to Wild Earth, KPAL, and Hi Brands. Eden is not operating and had no activity for the nine months ended September 30, 2020 and 2019.
Our primary operations in the nine months ended September 30, 2020 were through PrestoCorp, which provides telemedicine online referral services for customers desiring medical marijuana cards in states where medical marijuana has been legalized. GKMP commenced operations during the second quarter of 2020. The Company is also actively seeking new business opportunities for acquisition and is continually reviewing opportunities for product and brand development through our Wild Earth, Hi Brands, and KPAL subsidiaries. iBudtender is also working to complete and commercialize an application (the iBudtender App) that will provide a convenient means for sharing information about cannabis products, patients and businesses.
Basis of Presentation:
The fiscal year end is December 31. The accompanying condensed consolidated balance sheets as of September 30, 2020 and December 31, 2019, have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of the Company’s management all material adjustments (consisting only of normal recurring adjustments) which are considered necessary for a fair presentation of the interim financial statements have been included. Operating results for the three and nine months ended September 30, 2020 are not necessarily indicative of the results of operations expected for the year ending December 31, 2020.
The interim financial statements should be read in conjunction with the audited financial statements and related footnotes set forth in our annual report filed on Form 10-K for the year ended December 31, 2019 as filed with the United States Securities and Exchange Commission on May 14, 2020.
FS - 6
CANNABIS SATIVA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS – UNAUDITED
For the Nine Months Ended September 30, 2020 and 2019
1. Organization and Summary of Significant Accounting Policies, Continued:
Principles of Consolidation:
The condensed consolidated financial statements include the accounts of Cannabis Sativa, Inc. (the “Company” or “CBDS”), and its wholly-owned subsidiaries; Wild Earth Naturals, Inc., Hi-Brands International, Inc., Eden Holdings LLC, our 50.1% ownership of iBudtender Inc., our 51% ownership of PrestoCorp, and our 51% ownership of GK Manufacturing Inc., (collectively referred to as the “Company”). All significant inter-company balances have been eliminated in consolidation. We hold controlling interests in iBudTender, PrestoCorp and GK Manufacturing and exercise control through management practices and oversight by the Company’s Board of Directors. GK Manufacturing was established in February 2020.
Non-controlling Interests:
Non-controlling interests are portions of entities included in the condensed consolidated financial statements that are not attributable to the Company. Non-controlling interest are identified separately from the Company’s stockholders’ equity and its net income (loss). Non-controlling interest equity balances include the non-controlling entity’s initial contribution at the date of the original acquisition, ongoing contributions, distributions, and percentage share of earnings since inception. The non-controlling interests are calculated based on percentages of ownership.
Going Concern:
The Company has an accumulated deficit of $76,520,184 at September 30, 2020, which, among other factors, raises substantial doubt about the Company’s ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company’s ability to generate profitable operations in the future and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they are due.
Use of Estimates:
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Significant estimates and assumptions by management affect the allowance for doubtful accounts, the carrying value of long-lived assets (including goodwill and intangible assets), the provision for income taxes and related deferred tax accounts, certain accrued liabilities, revenue recognition, contingencies, and the value attributed to stock-based awards.
Accounts Receivable:
We estimate credit loss reserves for accounts receivable on an individual receivable basis. A specific allowance reserve is established based on expected future cash flows and the financial condition of the debtor. We charge off customer balances in part or in full when it is more likely
FS - 7
CANNABIS SATIVA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS – UNAUDITED
For the Nine Months Ended September 30, 2020 and 2019
1. Organization and Summary of Significant Accounting Policies, Continued:
than not that we will not collect that amount of the balance due. We consider any balance unpaid after the contract payment period to be past due.
Inventories:
Inventory costs, when applicable, include those costs directly attributable to the manufacture of the product before sale. Inventory consists of raw materials and finished goods and is carried at the lower of cost or net realizable value, using the first-in, first-out method of determining cost. As of September 30, 2020, the Company had $62,237 in inventory relating to GKMP. Inventory consists of the raw materials and packaging used to manufacture cannabidiol (“CBD”) infused products for our customers. As of December 31, 2019, the Company had no inventory.
Property and Equipment:
Property and equipment are recorded at cost. Depreciation is provided for on the straight-line method over the estimated useful lives of the assets. The average lives range from five (5) to ten (10) years. Leasehold improvements are amortized on the straight-line method over the lesser of the lease term or the useful life. Maintenance and repairs that neither materially add to the value of the property nor appreciably prolong its life are charged to expense as incurred. Betterments or renewals are capitalized when incurred.
Fair Value of Financial Instruments:
The carrying amounts of cash and cash equivalents and amounts due to related parties approximate fair value given their nature.
Cash:
Cash is held at major financial institutions and insured by the Federal Deposit Insurance Corporation (FDIC) up to federal insurance limits. The Company considers all highly liquid investments purchased with an original maturity of three months or less when acquired to be cash equivalents.
Net Loss per Share:
Net loss per share is computed by dividing net loss available to common shareholders by the weighted average number of common shares outstanding for the period and contains no dilutive securities. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of the Company. Potentially dilutive shares are excluded from the calculation of diluted net loss per share because the effect is anti-dilutive. At September 30, 2020 and 2019, the Company had 125,000 and 49,900 outstanding warrants, respectively, that would be dilutive to future periods net income. Also, at September 30, 2020 and 2019 the Company had 1,140,855 and 914,706 shares of convertible Series A preferred stock, respectively, that would be dilutive to future periods net income. See Note 6.
FS - 8
CANNABIS SATIVA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS – UNAUDITED
For the Nine Months Ended September 30, 2020 and 2019
1. Organization and Summary of Significant Accounting Policies, Continued:
Revenue Recognition:
Revenues are recognized when control of the promised goods or services are transferred to a customer, in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services. The Company recognizes revenue from the sale of products and services in accordance with ASC 606,” Revenue Recognition”. The Company applies the following five steps in order to determine the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its agreements:
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identify the contract with a customer;
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identify the performance obligations in the contract;
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determine the transaction price;
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allocate the transaction price to performance obligations in the contract; and
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recognize revenue as the performance obligation is satisfied.
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Provision for sales incentives, discounts and returns and allowances, if applicable, are accounted for as reductions of revenue in the period the related sales are recorded. The Company had no warranty costs associated with the sales of its products in the periods presented in the accompanying condensed consolidated statements of operations and no provision for warranty expenses has been included.
The Company currently operates two divisions, the telehealth business operated through PrestoCorp, and the contract manufacturing business operated through GKMP.
The telehealth division generates revenue based on a per telehealth visit for clients looking to obtain a permit to use marijuana for medical purposes in states that have legalized medical marijuana. Revenues are recognized when the Company satisfies its performance obligation to provide telehealth services and a referral to a contracted physician. This occurs at the same time an online client subscribes for the visit and gains access to our network of health care professionals. This initial service is a one-time referral to a physician. Clients may return for other telehealth consultations, typically regarding product recommendations, and such additional physician referrals are provided at an additional cost. The billing and payment processes for each physician referral are automated through our online platform. Revenue is recognized in an amount that reflects the consideration that is received in exchange for each physician referral provided to the client.
The contract manufacturing division recognizes revenue from manufacturing operations when the products are shipped to the customer. In some instances, customers provide inventory for the manufacturing process and GKMP provides labor, supplies and manufacturing operations to mix and package the products. Revenues are recognized when the manufacturing and packaging process are completed and the goods have been shipped to the customer. In other instances, the Company acquires inventory and manufactures products for customers and/or to hold in inventory for later sale to customers through the on-site dispensary, through the web, or to independent
FS - 9
CANNABIS SATIVA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS – UNAUDITED
For the Nine Months Ended September 30, 2020 and 2019
1. Organization and Summary of Significant Accounting Policies, Continued:
distributors. In these instances, revenue is recognized when the product is shipped to the customer or distributor. Shipment terms are FOB origination. Inventory consists of emoluments, CBD oils, scents, flavors, and similar components of the salves, edibles, drinks, and topical products GKMP produces.
Investments
Equity securities in which the Company owns less than a 20% interest are generally measured at fair value. Unrealized gains and losses for equity securities are included other (income) expenses in the condensed consolidated statement of operations. If an equity security does not have a readily determinable fair value, the Company may elect to measure the security at its cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. On disposal of an investment, the difference between the disposal proceeds and the carrying amount is recognized as income or loss on the condensed consolidated statement of operations.
Intangible Assets and Goodwill:
The Company accounts for intangible assets and goodwill in accordance with ASC 350 “Intangibles-Goodwill and Other” (“ASC 350”).
Intangible asset amounts represent the acquisition date fair values of identifiable intangible assets acquired. The fair values of the intangible assets were determined by using the income approach, discounting projected future cash flows based on management’s expectations of the current and future operating environment. The rates used to discount projected future cash flows reflected a weighted average cost of capital based on our industry, capital structure and risk premiums including those reflected in the current market capitalization. Definite-lived intangible assets are amortized over their useful lives, which have historically ranged from 5 to 10 years. The carrying amounts of our definite-lived intangible assets are evaluated for recoverability whenever events or changes in circumstances indicate that the entity may be unable to recover the asset’s carrying amount. We do not have any indefinite-lived intangible assets recorded from acquisitions.
Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired in a business combination. Goodwill is not amortized but is tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset may be impaired. The fair value of the reporting unit is evaluated on qualitative factors to determine if the reported value may be impaired. If the qualitative factors indicate a likelihood of impairment, we then evaluate carrying value of the reporting unit based on quantitative factors using the income approach. An impairment charge is recognized for the excess of the carrying value of goodwill for the reporting unit over its implied fair value.
FS - 10
CANNABIS SATIVA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS – UNAUDITED
For the Nine Months Ended September 30, 2020 and 2019
1. Organization and Summary of Significant Accounting Policies, Continued:
Advertising Expense:
Advertising costs are expensed as incurred and are broken out separately in the accompanying consolidated statements of operations.
Stock-Based Compensation:
Stock-based payments to employees and non-employees are recognized at their fair values. Compensation expense is recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period). The Company uses the Black-Scholes option pricing model when necessary as the most appropriate fair value method for option awards. Most awards have been in the form of shares of the Company’s common and preferred stock issued under the Company’s 2017 Stock Plan. See Note 6. The Company currently recognizes compensation costs immediately as our awards are 100% vested at the time of issuance.
Income Taxes:
The Company utilizes the liability method of accounting for income taxes which requires that deferred tax assets and liabilities be recorded to reflect the future tax consequences of temporary differences between the book and tax basis of various assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Additionally, deferred tax assets are evaluated, and a valuation allowance is established if it is more likely than not that all or a portion of the deferred tax asset will not be realized. There can be no assurance that the Company’s future operations will produce sufficient earnings so that the deferred tax asset can be fully utilized. The Company currently maintains a full valuation allowance against net deferred tax assets.
Leases:
The Company determines if an arrangement is a lease, or contains a lease, at the inception of an arrangement. If the Company determines that the arrangement is a lease, or contains a lease, at lease inception, it then determines whether the lease is an operating lease or finance lease. Operating and finance leases result in recording a right-of-use (“ROU”) asset and lease liability on the consolidated balance sheets. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. For purposes of calculating operating lease ROU assets and operating lease liabilities, the Company uses the non-cancellable lease term plus options to extend that it is reasonably certain to exercise. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term. The Company’s leases generally do not provide an implicit rate.
FS - 11
CANNABIS SATIVA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS – UNAUDITED
For the Nine Months Ended September 30, 2020 and 2019
1. Organization and Summary of Significant Accounting Policies, Continued:
As such, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company has elected not to recognize ROU assets and lease liabilities that arise from short-term (12 months or less) leases for any class of underlying asset. The Company has elected not to separate lease and non-lease components for any class of underlying asset.
Fair Value Measurements:
When required to measure assets or liabilities at fair value, the Company uses a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used. The Company determines the level within the fair value hierarchy in which the fair value measurements in their entirety fall. The categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Level 1 uses quoted prices in active markets for identical assets or liabilities, Level 2 uses significant other observable inputs, and Level 3 uses significant unobservable inputs. The amount of the total gains or losses for the period are included in earnings that are attributable to the change in unrealized gains or losses relating to those assets and liabilities still held at the reporting date. We measure our investment in equity securities at fair value on a recurring basis. The Company’s equity securities are valued using inputs observable in active markets and are therefore classified as Level 1 within the fair value hierarchy.
Recent Accounting Pronouncements:
Accounting Standards Updates Adopted
In August 2018, the FASB issued ASU No. 2018-13 Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. The update removes, modifies, and makes additions to the disclosure requirements on fair value measurements. The update was adopted as of January 1, 2020, and its adoption did not have a material impact on the Company’s financial statements.
Accounting Standards Updates to Become Effective in Future Periods
In November 2018, the FASB issued ASU 2018-18, Clarifying the Interaction Between Topic 808 and Topic 606 Revenue from Contracts with Customers, which clarifies when transactions between participants in a collaborative arrangement are within the scope of Topic 606. This ASU becomes effective for the Company in the year ending December 31, 2020 and early adoption is permitted. The Company is currently assessing the impact that this ASU will have on its consolidated financial statements.
Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the financial statements upon adoption.
FS - 12
CANNABIS SATIVA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS – UNAUDITED
For the Nine Months Ended September 30, 2020 and 2019
2. Property and Equipment
Property and equipment consisted of the following at September 30, 2020 and December 31, 2019:
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September 30, 2020
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December 31, 2019
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Furniture and Equipment
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$ 224,265
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$ 17,414
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Leasehold Improvements
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17,315
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2,500
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241,580
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19,914
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Less: Accumulated Depreciation
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(29,646)
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(13,474)
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Net Property and Equipment
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$ 211,934
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$ 6,440
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Depreciation expense for the three and nine months ended September 30, 2020 was $14,155 (2019: $763) and $16,172 (2019: $2,201), respectively.
3. Intangibles and Goodwill
The Company considers all intangibles to be definite-lived assets with lives of 5 to 10 years. Intangibles consisted of the following at September 30, 2020 and December 31, 2019:
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September 30, 2020
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December 31, 2019
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CBDS.com website (Cannabis Sativa)
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$ 13,999
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$ 13,999
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Intellectual Property Rights (PrestoCorp)
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240,000
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240,000
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Patents and Trademarks (KPAL)
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1,281,411
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1,281,411
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Total Intangibles
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1,535,410
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1,535,410
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Less: Accumulated Amortization
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(994,146)
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(840,192)
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Net Intangible Assets
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$ 541,264
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$ 695,218
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Amortization expense for the three and nine months ended September 30, 2020 were $51,318 (2019: $139,573) and $153,954 (2019: $419,052), respectively.
Amortization of intangibles for each of the next five years is:
2021
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$178,174
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2022
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$166,229
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2023
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$151,686
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2024
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$ 40,738
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2025
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$ 4,437
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Goodwill in the amount of $3,010,202 was recorded as part of the acquisition of PrestoCorp that occurred on August 1, 2017. Cumulative impairment of the PrestoCorp goodwill totals $1,173,000 as of September 30, 2020 and December 31, 2019.
Goodwill in the amount of $336,667 was recorded as part of the acquisition of iBudtender that occurred on August 8, 2016. For the year ended December 31, 2019 the Company recorded a $336,667 impairment of the iBudtender goodwill. The impairment of the iBudtender goodwill was
FS - 13
CANNABIS SATIVA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS – UNAUDITED
For the Nine Months Ended September 30, 2020 and 2019
3. Intangibles and Goodwill, Continued:
due to delays in completion of the iBudtender software and mobile app, and failure to commence viable business operations, as well as the uncertainty surrounding the future of the business opportunity. Cumulative impairment of the iBudtender goodwill totals $336,667 as of September 30, 2020 and December 31, 2019.
There were no additions, deletions, and impairments recognized in the nine months ended September 30, 2020 and 2019. The Company considered the impact of COVID-19 on intangible assets for the interim period ended September 30, 2020 and concluded that an interim impairment analysis is not necessary. The Company’s telehealth business has been positively impacted by the pandemic.
4. Related Party Transactions
The Company has received advances from related parties and officers of the Company to cover operating expenses. Related parties include the officers and directors of the Company, and a significant shareholder holding in excess of a 10% interest in the Company. As of September 30, 2020 and December 31, 2019, amounts due to the related parties were $1,164,020 and $1,018,520, respectively. During the nine months ended September 30, 2020 and 2019, the Company recorded interest expense related to these advances at the rates between 5% and 8% per annum and in the amounts of $44,220 and $36,426, respectively. The Company does not have written notes payable for these balances but has a verbal understanding with the related parties that written notes will be created in 2020 to reflect the balances due and payable December 31, 2025. These balances were classified as current liabilities as of September 30, 2020 as the written notes have not yet been finalized. New advances in the nine months ended September 30, 2020 were $145,500.
At September 30, 2020 and December 31, 2019, the Company had a note payable to the founder of iBudtender of $10,142 and $10,142, respectively, which is included in due to related parties on the consolidated balance sheets. The note earns interest at 0% and was due on December 2019. The note has not yet been paid pending further review of the iBudtender business and adjustment of the agreements between the parties.
In the three and nine months ended September 30, 2020, the Company incurred approximately $39,160 (2019: $15,667) and $127,535 (2019: $51,710), respectively, for consulting services from a nephew of the Company’s president. These services were paid in shares of the Company’s common stock.
The Company paid officer and director compensation for services in shares of common stock in order to reduce operating cash flow requirements. The shares were recorded at fair value at the time of issuance as compensation expense. See Note 6 regarding shares issued to related parties. In the three and nine months ended September 30, 2020, the Company paid $220,183 (2019: $252,987) and $689,869 (2019: $520,060), respectively. The amounts are included in the statements of operations in general and administrative expenses.
FS - 14
CANNABIS SATIVA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS – UNAUDITED
For the Nine Months Ended September 30, 2020 and 2019
5. Investments
The Company owns 10,000,000 shares of common stock of Medical Cannabis Payment Solutions (ticker: REFG). At September 30, 2020, the fair value of the investment in REFG was adjusted to $81,000 based on the closing price of the stock on that date, which resulted in an unrealized gain on investment of $33,000 during the nine month period ended September 30, 2020. At December 31, 2019, the fair value of the investment in REFG was adjusted to $48,000 based on the closing price of the stock on that date, which resulted in an unrealized loss on investment of $152,000 during the year ended December 31, 2019.
6. Stockholders’ Equity
Share Capital
The authorized capital of the Company consists of 45,000,000 shares of Common Stock with a par value of $0.001 and 5,000,000 shares of preferred stock issuable in series with such rights, preferences and conditions as the Board of Directors may establish. The Company has designated and established the rights of Series A preferred stock (“Series A”) with a par value of $0.001. The Company is authorized to issue up to 5,000,000 shares of Series A. The holders of Series A are entitled to dividends if the Company declares a dividend on common shares, have no liquidation preference, have voting rights equal to 1 vote per share, and can be converted into one share of common at any time. In the nine months ended September 30, 2020, a related party converted 340,172 preferred shares into 340,172 shares of common stock. No preferred shares were converted in the nine months ended September 30, 2019.
Shares of Stock issued for Asset Acquisition
In the nine months ended September 30, 2020, the Company acquired assets and established GK Manufacturing and Packaging, Inc. (“GKMP”) to conduct contract manufacturing operations for customers seeking to obtain CBD infused products, including salves, tinctures, edibles, and other products containing CBD. In connection with the acquisition, the Company issued two key individuals an aggregate of 100,000 shares of common stock with a fair value of $109,000 for a 51% interest in GKMP. Assets acquired included inventory needed for manufacturing the CBD products ($47,987); a packaging line and other manufacturing equipment ($164,488); and a deposit ($1,250). The assets values totaled $213,725, of which $104,725 relates to the 49% non-controlling interest. GKMP also assumed the payments on a lease for equipment, agreed to provide up to $500,000 of additional working capital to GKMP, and agreed to an earnout provision where additional shares of common stock may become issuable to the key individuals in the event certain performance standards are met. See Note 7.
Upon completion of the acquisition of assets for GKMP, GKMP entered into employment agreements with the two key individuals. The employment agreements are terminable at any time with or without cause, but in the event of termination without cause, the salary will continue for six months. Salary for the president of GKMP is set at $65,000 per annum and salary for the Vice
FS - 15
CANNABIS SATIVA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS – UNAUDITED
For the Nine Months Ended September 30, 2020 and 2019
6. Stockholders’ Equity, Continued:
President – Sales and Marketing is set at $50,000 per annum. The agreements also provide the individuals with expense reimbursements and other employee benefits comparable to those being offered to the other employees of the Company. Currently, GKMP has not established any other employee benefit programs. The 49% non-controlling interest is considered a related party to the Company because the non-controlling interest is owned, in part by the president of GKMP.
The completion of the GKMP asset acquisition resulted in payment of a finder’s fee to an unrelated party. The finder’s fee was paid by issuance of 50,000 shares of common stock with a fair value at the time of issuance of $36,000 which was recognized as an expense upon completion of the acquisition.
2017 Stock Plan
On July 28, 2017, the Company adopted the Cannabis Sativa 2017 Stock Plan which authorized the Company to utilize common stock to compensate employees, officers, directors, and independent contractors for services provided to the Company. The Company authorized up to 3,000,000 shares of common stock to be issued pursuant to the 2017 Stock Plan. At September 30, 2020, the Company was authorized to issue up to 85,070 additional shares under the 2017 Stock Plan.
Warrants
At September 30, 2020 and December 31, 2019, the Company had outstanding warrants to purchase 125,000 shares and 174,900 shares of the Company’s common stock, respectively. The exercise price on 125,000 warrants was $0.80 per share and these warrants expire in November 2022. Warrants to purchase up to 49,900 shares of common stock at $2.00 per share expired on February 1, 2020.
Securities Issuances
During the nine months ended September 30, 2020 and 2019, shares of common stock and preferred stock were issued to related and non-related parties for stock payable as of the prior year end, and/or for services, acquisitions and settlements. The following tables break out the issuances by type of transaction and by related and non-related parties. The Company also issued 50,000 shares of common stock for $25,000 pursuant to a private placement that was closed during the nine months ended September 30, 2020.
FS - 16
CANNABIS SATIVA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS – UNAUDITED
For the Nine Months Ended September 30, 2020 and 2019
6. Stockholders’ Equity, Continued:
Nine months ended September 30, 2020
|
Share Issuances
|
|
Services
|
|
Other Activity
|
|
Total
|
Shares issued for stock payable
|
|
Common
|
Preferred
|
Value
|
|
Common
|
Preferred
|
Value
|
|
Common
|
Preferred
|
Value
|
Related party issuance
|
|
521,411
|
223,214
|
$ 431,201
|
|
-
|
-
|
$ -
|
|
521,411
|
223,214
|
$ 431,201
|
Unrelated party issuance
|
|
441,827
|
-
|
209,484
|
|
-
|
-
|
-
|
|
441,827
|
-
|
209,484
|
Total shares for stock payable
|
|
963,238
|
223,214
|
$ 640,685
|
|
-
|
-
|
$ -
|
|
963,238
|
223,214
|
$ 640,685
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of preferred stock
|
|
-
|
-
|
$ -
|
|
340,172
|
(340,172)
|
$ -
|
|
340,172
|
(340,172)
|
$ -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services
|
|
|
|
|
|
|
|
|
|
|
|
|
Related party issuances
|
|
|
|
|
|
|
|
|
|
|
|
|
David Tobias, Officer, Director
|
|
-
|
235,964
|
$ 136,490
|
|
-
|
-
|
$ -
|
|
-
|
235,964
|
$ 136,490
|
Brad Herr, Officer, Director
|
|
335,543
|
-
|
193,034
|
|
-
|
-
|
-
|
|
335,543
|
-
|
193,034
|
Robert Tankson, Director
|
|
108,773
|
-
|
56,082
|
|
-
|
-
|
-
|
|
108,773
|
-
|
56,082
|
Cathy Carroll, Director
|
|
235,964
|
-
|
136,490
|
|
-
|
-
|
-
|
|
235,964
|
-
|
136,490
|
Trevor Reed, Director
|
|
39,328
|
-
|
22,749
|
|
-
|
-
|
-
|
|
39,328
|
-
|
22,749
|
Keith Hyatt, President GKMP
|
|
164,932
|
-
|
100,580
|
|
-
|
-
|
-
|
|
164,932
|
-
|
100,580
|
Kyle Powers, CEO PrestoCorp
|
|
92,593
|
-
|
44,444
|
|
-
|
-
|
-
|
|
92,593
|
-
|
44,444
|
Total related party issuances
|
|
977,133
|
235,964
|
689,869
|
|
-
|
-
|
-
|
|
977,133
|
235,964
|
689,869
|
Unrelated Party issuances
|
|
1,362,133
|
-
|
865,339
|
|
-
|
-
|
-
|
|
1,362,133
|
-
|
865,339
|
Total shares for services
|
|
2,339,266
|
235,964
|
$ 1,555,208
|
|
-
|
-
|
$ -
|
|
2,339,266
|
235,964
|
$ 1,555,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance for acquisitions
|
|
-
|
-
|
$ -
|
|
100,000
|
|
$ 109,000
|
|
100,000
|
-
|
$ 109,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate totals
|
|
3,302,504
|
459,178
|
$ 2,195,893
|
|
440,172
|
|
$ 109,000
|
|
3,742,676
|
119,006
|
$ 2,304,893
|
Nine months ended September 30, 2019
|
Share Issuances
|
|
Services
|
|
Other Activity
|
|
Total
|
Shares issued for stock payable
|
|
Common
|
Preferred
|
Value
|
|
Common
|
Preferred
|
Value
|
|
Common
|
Preferred
|
Value
|
Related party issuances
|
|
85,681
|
39,391
|
$ 340,080
|
|
-
|
-
|
$ -
|
|
85,681
|
39,391
|
$ 340,080
|
Unrelated paryt issuances
|
|
41,380
|
-
|
114,216
|
|
-
|
-
|
-
|
|
41,380
|
-
|
114,216
|
Total shares for stock payable
|
|
127,061
|
39,391
|
$ 454,296
|
|
-
|
-
|
$ -
|
|
127,061
|
39,391
|
$ 454,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services
|
|
|
|
|
|
|
|
|
|
|
|
|
Related Party issuances
|
|
|
|
|
|
|
|
|
|
|
|
|
David Tobias, Officer, Director
|
|
-
|
115,871
|
$ 207,389
|
|
-
|
-
|
$ -
|
|
-
|
115,871
|
$ 207,389
|
Donald Lundbom, CFO
|
|
92,826
|
-
|
166,864
|
|
-
|
-
|
-
|
|
92,826
|
-
|
166,864
|
Stephen Downing, Director
|
|
15,021
|
-
|
27,002
|
|
-
|
-
|
-
|
|
15,021
|
-
|
27,002
|
Cathy Carroll, Director
|
|
30,041
|
-
|
54,002
|
|
-
|
-
|
-
|
|
30,041
|
-
|
54,002
|
Trevor Reed, Director
|
|
12,016
|
-
|
21,601
|
|
-
|
-
|
-
|
|
12,016
|
-
|
21,601
|
Deborah Goldsberry, Director
|
|
12,016
|
-
|
21,601
|
|
-
|
-
|
-
|
|
12,016
|
-
|
21,601
|
Michael Gravel, Director
|
|
12,016
|
-
|
21,601
|
|
-
|
-
|
-
|
|
12,016
|
-
|
21,601
|
Total related party issuances
|
|
173,936
|
115,871
|
$ 520,060
|
|
-
|
-
|
$ -
|
|
173,936
|
115,871
|
$ 520,060
|
Unrelated party issuances
|
|
174,949
|
-
|
$ 355,543
|
|
-
|
|
$ -
|
|
174,949
|
-
|
$ 355,543
|
Total shares for services
|
|
348,885
|
115,871
|
$ 875,603
|
|
-
|
-
|
$ -
|
|
348,885
|
115,871
|
$ 875,603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares cancelled
|
|
-
|
-
|
$ -
|
|
(70,000)
|
-
|
$ -
|
|
(70,000)
|
-
|
$ -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate totals
|
|
475,946
|
155,262
|
$ 1,329,899
|
|
(70,000)
|
-
|
$ -
|
|
405,946
|
155,262
|
$ 1,329,899
|
7. Commitments and Contingencies
Leases. The Company renewed a lease in Mesquite, Nevada in November 2019 on a month to month basis at a cost of $600 per month. The Company terminated the lease at the end of February 2020, and now operates out of a virtual office maintained by our Chief Executive Officer.
PrestoCorp leases office space through WeWork in New York for $2,444 per month on a month to month arrangement. Until February 2019, PrestoCorp also leased space in San Francisco for $2,800 per month. PrestoCorp terminated its lease and closed its office in San Francisco as of the end of February 2019. Primary operations for PrestoCorp are now based in New York City. Rent
FS - 17
CANNABIS SATIVA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS – UNAUDITED
For the Nine Months Ended September 30, 2020 and 2019
7. Commitments and Contingencies, Continued:
expense for the three and nine months ended September 30, 2020 was $7,332 (2019: $6,196) and $25,451 (2019: $23,657), respectively.
GKMP leases a commercial printer and a bottle filling line, both of which are used in its manufacturing and packaging operations. The Company assumed the printer lease as part of the acquisition of GKMP’s assets (see Note 6). The bottle filler was leased by GKMP commencing on April 1, 2020. The Company recognizes a right to use asset for each lease at the time the lease obligation is fixed. To calculate the liability and right of use asset, the Company utilized a 10% incremental borrowing rate to discount the future rent payments over the remaining lease terms. For the three and nine months ended September 30, 2020, the Company recognized $8,647 and $17,566, respectively in lease expense. Lease expense is reported as cost of goods sold in the consolidated statements of operations.
At September 30, 2020, the remaining lease term is 33 months on the printer and 18 months on the bottle filling line. The lessors hold deposits of $1,250 on the printer lease and $8,500 on the bottle filling line. Future minimum lease payments over the remaining term are as follows:
From October 1, 2020 to September 30, 2021
|
$ 34,130
|
From October 1, 2021 to September 30, 2022
|
20,756
|
From October 1, 2022 to September 30, 2023
|
6,143
|
Total
|
61,029
|
Less imputed interest
|
(8,311)
|
Net lease liability
|
52,718
|
Current portion
|
(29,191)
|
Long term
|
$ 23,527
|
Litigation. In the ordinary course of business, we may face various claims brought by third parties and we may, from time to time, make claims or take legal actions to assert our rights, including intellectual property disputes, contractual disputes and other commercial disputes. Any of these claims could subject us to litigation. As of September 30, 2020, one claim was pending or threatened relating to general business disputes and accounts payable for services. Management believes the outcome of currently pending claim is not likely to have a material effect on our consolidated financial position and results of operations.
Shares in Escrow. At September 30, 2020 and December 31, 2019, the Company has 419,475 shares of common stock in escrow as part of the acquisition of PrestoCorp. These shares are issuable in certain circumstances to the principals of PrestoCorp based on performance of the PrestoCorp business in 2020 and 2021. The escrow account originally contained 629,213 shares of common stock but 209,738 shares were cancelled in 2018 when the performance requirements were not met. The escrowed shares are not counted in the outstanding stock of the Company and will be considered compensation to the principals if and when issued. The escrow account also includes an additional 500 shares of PrestoCorp common stock which is distributable either back to the principals of PrestoCorp or to the Company, also depending on certain minimum
FS - 18
CANNABIS SATIVA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS – UNAUDITED
For the Nine Months Ended September 30, 2020 and 2019
7. Commitments and Contingencies, Continued:
performance requirements which extend into 2021. If all of the PrestoCorp shares are ultimately distributed to the Company, the shares would have the effect of increasing the Company’s ownership of PrestoCorp to 61% from the current level of 51%.
Contingent Consideration. In connection with the GKMP asset acquisition, the Company agreed to pay additional consideration to the two key individuals employed by GKMP upon achievement of certain performance goals. If GKMP net revenues exceed $3,000,000 and net income exceeds 25% of net revenues in the year ended December 31, 2020, an additional $1,000,000 in consideration will be due to the key individuals. If GKMP net revenues exceed $6,000,000 and net income exceeds 25% of net revenues in the year ended December 31, 2020, an additional $500,000 in consideration will be due to the key individuals ($1,500,000 in the aggregate). Through September 30, 2020, GKMP has reported net revenues of approximately $72,000. The additional consideration amounts, if any, are payable in stock at the average closing price of the shares in the five trading days prior to the date of payment.
Working Capital Obligation. In connection with the GKMP asset acquisition, the Company agreed to provide up to an additional $500,000 in working capital to GKMP. These amounts are recorded as investment in GKMP by CBDS and as equity on the books of GKMP and are eliminated in the consolidation. Due to the ownership structure of GKMP, 49% of the working capital payments from the Company to GKMP benefit the holders of the non-controlling interest. As of September 30, 2020, the full amount of $500,000 has been advanced by CBDS to GKMP.
8. Business Segments and Revenues
The Company is currently organized and managed in two segments which represent our operating units: PrestoCorp and GKMP. PrestoCorp is a telehealth business and GKMP is a contract manufacturing business. General corporate activities not associated with these segments are presented as “other.” Other income (expense) items are considered general corporate items and are not allocated to our segments.
Property and equipment, net
|
|
September 30,
|
|
December 31,
|
|
|
2020
|
|
2019
|
PrestoCorp
|
|
$ 2,268
|
|
2,815
|
GKMP
|
|
206,993
|
|
-
|
Other
|
|
2,673
|
|
3,625
|
Total
|
|
$ 211,934
|
|
$ 6,440
|
FS - 19
CANNABIS SATIVA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS – UNAUDITED
For the Nine Months Ended September 30, 2020 and 2019
8. Business Segments and Revenues, Continued:
Capital expenditures
|
For the Three Months Ended
|
|
For the Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
September 30,
|
|
September 30,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
PrestoCorp
|
|
$ -
|
|
$ -
|
|
$ 2,531
|
|
$ -
|
GKMP
|
|
-
|
|
-
|
|
54,649
|
|
-
|
Other
|
|
-
|
|
-
|
|
-
|
|
1,635
|
Total
|
|
$ -
|
|
$ -
|
|
$ 57,180
|
|
$ 1,635
|
Financial information for each operating segment is as follows:
|
Three-months ended September 30,
|
|
Nine-months ended September 30,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
PrestoCorp
|
|
|
|
|
|
|
|
Revenue
|
$ 416,982
|
|
$ 453,653
|
|
$ 1,602,599
|
|
$ 704,998
|
Cost of revenue
|
158,360
|
|
176,516
|
|
607,837
|
|
291,713
|
Gross profit
|
258,622
|
|
277,137
|
|
994,762
|
|
413,285
|
Depreciation and amortization
|
$ 13,858
|
|
$ 20,128
|
|
$ 42,030
|
|
$ 60,626
|
|
|
|
|
|
|
|
|
GKMP
|
|
|
|
|
|
|
|
Revenue
|
42,568
|
|
-
|
|
70,989
|
|
-
|
Cost of revenue
|
70,329
|
|
-
|
|
90,470
|
|
-
|
Gross profit
|
(27,760)
|
|
-
|
|
(19,481)
|
|
-
|
Depreciation and amortization
|
$ 13,377
|
|
$ -
|
|
$ 13,377
|
|
$ -
|
|
|
|
|
|
|
|
|
OTHER
|
|
|
|
|
|
|
|
Revenue
|
236
|
|
-
|
|
433
|
|
-
|
Depreciation and amortization
|
$ 38,240
|
|
$ 120,209
|
|
$ 114,719
|
|
$ 360,628
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
Revenue
|
459,786
|
|
453,653
|
|
1,674,021
|
|
704,998
|
Cost of revenue
|
228,689
|
|
176,516
|
|
698,307
|
|
291,713
|
Gross profit
|
$ 231,097
|
|
$ 277,137
|
|
$ 975,714
|
|
$ 413,285
|
Depreciation and amortization
|
$ 65,475
|
|
$ 140,337
|
|
$ 170,126
|
|
$ 421,254
|
Revenues from major customers by operating unit are as follows:
Customer Concentrations
|
|
Three-months ended September 30,
|
|
Nine-months ended September 30,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
PrestoCorp
|
|
|
|
|
|
|
|
|
Total PrestoCorp concentrations
|
$ -
|
|
$ -
|
|
$ -
|
|
$ -
|
% of PrestoCorp revenues
|
|
0%
|
|
0%
|
|
0%
|
|
0%
|
GKMP
|
|
|
|
|
|
|
|
|
Customer A
|
|
$ -
|
|
$ -
|
|
$ 8,257
|
|
$ -
|
Customer B
|
|
19,670
|
|
|
|
19,670
|
|
-
|
Total GKMP concentrations
|
|
$ 19,670
|
|
$ -
|
|
$ 27,927
|
|
$ -
|
% of GKMP revenues
|
|
46%
|
|
0%
|
|
39%
|
|
0%
|
FS - 20
CANNABIS SATIVA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS – UNAUDITED
For the Nine Months Ended September 30, 2020 and 2019
9. COVID - 19
The outbreak of COVID-19, the coronavirus, has grown both in the United States and globally, and related government and private sector responsive actions have adversely affected the Company’s business operations. The World Health Organization has declared Covid-19 to be a global pandemic, resulting in an economic downturn and changes in global economic policy that will reduce demand for the Company’s products and may have an adverse impact on the Company’s business, operating results and financial condition.
10. Subsequent Events
Subsequent to September 30, 2020, the Company issued 1,130,640 shares of common stock and 112,782 shares of preferred stock with an aggregate value of $435,198 to consultants and officers for services. The shares became issuable on October 1, 2020 and represented payment for services to be performed in the quarter ended December 31, 2020.
FS - 21